For centuries, businesses have partnered with other organizations for global expansion. The reasons, risks, structures, and strategies related to these partnerships evolve with changing business models, geopolitical climates, and emerging technologies.
What partnership challenges and opportunities are emerging in today’s business environment? Here are a few things we’re seeing in the marketplace—and trends for globally focused businesses to consider in their partnership strategies.
“Business ecosystems” open up new opportunities
Traditionally, a globally focused business may engage with a local partner for key functions like manufacturing and distribution. But today’s radical disruption of business models, across industries, is changing this paradigm.
Richard Straub, founder of the Peter Drucker Society Europe and the Global Peter Drucker Forum, explained the phenomena as follows in a Harvard Business Review article: “Much more complex than linear supply chains, ‘business ecosystems’ are groups of companies and other actors (platform providers, government agencies, independent contractors, co-creating customers, and so on) whose contributions come together to produce value.”
Global businesses are partnering in new areas and ways for new reasons, including:
Innovation on demand: For many companies, engaging a partner for the next new product or service may be a swifter and more economical path to market than investing in internal R&D. And Silicon Valley is just the tip of the innovation iceberg.
According to research firm CB Insights, 17 of the fastest-growing startups are dispersed around the world, ranging from CargoX, which serves the Brazilian trucking industry, to Australian startup Deputy, which creates digital productivity. In terms of infrastructure to support such efforts, cities from Barcelona to Buenos Aires are sponsoring innovation hubs, and funds like Kuwait’s $6.5 billion National Innovation Fund are providing small- and medium-sized enterprises with startup capital and private-sector mentors and advisors.
Accelerated access to new markets: Partners with products, services, and customers “ready to go” can also offer an internationally focused business an edge, especially in industries concurrently progressing at a breakneck pace around the world..
Take app-based ride-sharing, for example, a type of business which didn’t exist a decade ago. FlexClub in South Africa, which matches investors and drivers to cars, is partnering with Uber Mexico to expand its operations from Africa to the Western Hemisphere. Meanwhile, Uber is partnering with Emirates airlines to offer discounted airport rides to passengers who book through the website.
“Partnering pushes platforms and products into new markets, exposes brands to new constituencies, and enables companies to leapfrog the traditional barriers of expansion and scale,” said Jonathan Auerbach, executive vice president and chief strategy, growth, and data officer with PayPal.
Fintech firms partner for growth
Innovation-focused, fast-moving, and with a customer base that spans borders, the fintech space is in many ways well suited to such partnerships. One example involves Japan-based LINE Corporation, which operates a digital wallet and other services on a messaging app, and Visa. The two companies are working together on co-branded consumer and merchant services, exclusive marketing campaigns, the development of blockchain-based innovations, and more.
“As we transition to a cashless society, LINE Pay is focused on delivering added value to LINE’s users around the world and business partners,” said Youngsu Ko, CEO of LINE Pay and LINE’s Fintech Company. “With Visa’s global network and infrastructure, LINE Pay users will be able to enjoy the advantages of that innovative, worldwide network.”
Partnership strategies must adapt accordingly
“Now that firms’ activities are so intertwined and their successes so interdependent, the old tools and techniques of management will no longer work,” Straub cautioned. He cited the example of appliance manufacturer Haier. When the company restructured itself into hundreds of entrepreneurial “cells,” the company further extended this new structure through core business operations such as manufacturing, performance management, and accounting.
Drawing from the spirit of this example, companies should view their international business partnerships more holistically, looking beyond siloes to consider:
- Structures, processes, and tools that support partnerships
- Leadership styles to get partners aligned and working effectively
- How all partnerships align as a whole in creating value
Diligence matters more than ever
Meanwhile, companies more than ever need to know who they’re doing business with, particularly when it comes to compliance with regulations like the U.S. Foreign Corrupt Practices Act (FCPA). Just halfway into 2019, fines for FCPA violations are on track to exceed last year’s billions. Around 90 percent of FCPA enforcement actions involve “third party intermediaries.”
“In our global economy, international companies are increasingly reliant on complicated international supply chains,” said Chris Rowley, head of business intelligence and investigations at Risk Advisory. “Understanding who your third parties are — and how they do business — really is critical.”
Drawing from updated Department of Justice guidance on this area, companies engaged in global business partnerships should:
- Focus on prevention
- Keep watching for red flags beyond the initial evaluation and onboarding
- Close the loop with continuous evaluation
Specialist consultants and advisors can assist with international partnerships: mapping the landscape, identifying the best fit based on resources, capabilities, and culture, and facilitating all the details–legal, regulatory, logistical, and beyond. For more information, contact us.